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Income Tax Appellate Tribunal, “A’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
These appeals by assessee are directed against the different orders of ld. CIT(A) for the assessment years 2013-14 to 2018-19. 2. Facts of the case are that the assessee is the wife of Shri T. Puttaraju deriving income from house property by running residential and commercial buildings. A search & seizure action u/s 132 of the Income-tax Act,1961 ['the Act' for short] was conducted in the case of Shri Puttaraju on 10.9.2018. At the same time, search u/s 132 of the Act was carried at the residence of present assessee No.25, Royal Hermitage, Gottigere, Bannerghatta Road, Bangalore 560 083. Consequent to search operation, notice u/s 153A of the Act has been issued on 25.2.2020. In response to this, the assessee filed return of income on 16.10.2020 in all these assessment years
ITA Nos.468 to 473/Bang/2023 Smt. Rathnamma, Bangalore Page 2 of 10 and the assessment framed for all these assessment years making various additions. 3. The first common legal ground in these appeals is with regard to the validity of issue of notice u/s 153A of the Act as follows: “The learned CIT(A) has erred in not appreciating that the notice, 1. issued under Sec.153A of the Act is without jurisdiction and invalid, thereby rendering the proceedings and the order passed thereafter under Section 153A invalid. 2. The learned CIT(A) has erred in not appreciating that no search w conducted in the case of the appellant and therefore the notice under Section 153A and the subsequent order passed under Section 153A are invalid;
The learned CIT(A) has erred in holding that the panchanama of search initiated on 10.09.2018 was in the joint names of the appellant and her husband, whereas the panchanama does not contain the name of the appellant;
The learned CIT(A) erred in relying on the documents in the assessment records, without furnishing copies of the same and giving opportunity to the appellant to examine the same, thereby violating principles of natural justice;
The learned CIT(A) has erred in relying on the provisions of Sec.292CC of the Act as the same has no applicability in the instant case, in that the issue in dispute is not on the framing of assessment but in the provisions under which it has to be done”
3.1 At the time of hearing, these grounds are not pressed before us by an endorsement by ld. A.R. on today i.e. 13.9.2023. Accordingly, these grounds are dismissed as not pressed in all these appeals.
3.2 In the result, ITA Nos.469 to 472/Bang/2023 are dismissed since only ground in these appeals is with regard to validity of issue of notice u/s 153A of the Act.
Next ground in ITA No.468/Bang/2023 is with regard to addition of Rs.30.43 lakhs u/s 68 of the Act, which is being opening
ITA Nos.468 to 473/Bang/2023 Smt. Rathnamma, Bangalore Page 3 of 10 balance shown in the statement of affairs of the assessee in the financial year 2012-13.
4.1 Facts of the issue are that the assessee has filed the statement of affairs for the year ending 31.3.2013 relevant to the assessment year 2013-14, wherein capital account shown opening balance of Rs.41,22,092/-. The assessee pleaded before the ld. AO that it is the opening balance brought forward from earlier year ending on 31.3.2012 as an opening balance as on 1.4.2012 relevant to the financial year 2012-13 and which cannot make addition u/s 68 of the Act. 4.2 Further, the ld. A.R. submitted that the Assessee has furnished the Bank details of the earlier years to establish the source of Income. The learned AO has considered the rental Income of only the years on which the TDS is made and has dis- allowed the earlier years income. The question of taxability under Sec 68 of the Act would arise only where there is any sum found credited in the Books of accounts for which the nature and source of Income is not explained. The statement of Affairs containing the Opening Balance does not constitute as maintenance of Books of Accounts. Such opening Balance cannot be considered as "Unexplained Credit" for the purpose of Sec 68 of the IT Act. She submitted that it is relevant to note from the above that existence of books of accounts is necessary to invoke the provisions of section 68. In the present case, the Assessee has not/was not required to maintain books of accounts. The same is evident from the return of income filed u/s 153A of the Act. In support of the above contentions, the ld. A.R. placed reliance on the decision given by the Hon’ble Supreme Court in the case of CIT Vs P Mohankala Appeal No.2540 of 2007 [15-05-2007]. She further submitted that a bank pass book or balance sheet are not considered as books of accounts. The Income Tax Appellate Tribunal in the case of P Narasimha
ITA Nos.468 to 473/Bang/2023 Smt. Rathnamma, Bangalore Page 4 of 10 Rao Vs. DCIT Appeal No.840/Bang/2022 dated 26.05.2023 has held that in order to make an addition under this section the very sine qua non is that there should be any sum credited in the books of the Assessee. The very fact that there was a credit entry in the bank passbook of the assessee or entries in the balance sheet produced by the assessee during the course of assessment without maintaining books of accounts cannot be construed as a credit in the books of the assessee. 5. On the other hand, the ld. D.R. submitted that the assessee has to prove that this amount is the opening balance brought forward from earlier year by furnishing the Balance Sheet for the financial year 2011-12 (AY 2012-13), which the assessee has not produced. Hence, the same to be considered as unexplained income in the hands of the assessee. 5.1. The ld. D.R. submitted that it is evident from the Form no. 26AS that the assessee had income in the preceding years i.e. AY 2010-11 and 2012-13 on Account of rental income and contract receipts amounting to Rs. 21,58,185/-. Despite that these income of preceding years i.e. AY 2010-11 & 2012-13 were above the basic tax exemption limit, the assessee had not filed the return of income. Therefore, this income of preceding years cannot be accepted as a source of opening balance of capital account. Moreover, the assessee during the assessment proceedings had claimed that income other than rental income and contract receipt was loan which was taken from her husband shri Puttaraju. The AO at para no. 6.5.3 of assessment order has reproduced the extracts of statement of affairs of Shri. Puttaraju for AY 2011- 12 and 2012-13. On going through the same, it can be noticed that no entry has been recorded in the name of the assessee Smt. Rathnamma for the loan given to her. So he submitted that the claim made by the assessee in respect of source of opening balance of capital account that income other than
ITA Nos.468 to 473/Bang/2023 Smt. Rathnamma, Bangalore Page 5 of 10 rental income and contract receipt was loan given by her husband Shri. Puttaraju is not justified. Further, he submitted that the assessee has contended that taxability u/s 68 of the Act would arise when there is no explanation about the nature and source of credit. He drew our attention to the section 68 of Income Tax Act which states as under;
“Where any sum is found credited in the books of an assessee maintained 'for any previous year, and the assessee offers no explanation12 about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may° be charged to income-tax as the income of the assessee of that previous year : (Provided that) where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- t h e p e r s o n , b e i n g a r e s i d e n t i n w h o s e n a m e a ) s u c h c r e d i t i s r e c o r d e d i n t h e b o o k s o f s u c h c o m p a n y a l s o o f f e r s a n e x p l a n a t i o n a b o u t t h e n a t u r e a n d s o u r c e o f s u c h s u m s o c r e d i t e d ; a n d such explanation in the opinion of the Assessing Officer aforesaid has b ) been found to be satisfactory: [Provided further] that nothing contained in the first proviso (or second proviso] shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.]
5.2 Hence, the ld. D.R. argued that the addition made by the ld. AO to the extent of Rs.30,43,000/- being the unexplained credit as per the provisions of section 68 of the Act is justified and the same be confirmed. 6. We have heard the rival submissions and perused the materials available on record. In this case, the assessee has shown capital account balance as on 1.4.2012 at Rs.41,22,092/-. According to the ld. AO, the assessee has explained only to the tune of Rs.10,79,092/- and balance of Rs.30,43,000/- has not been explained by the assessee by proper sources. Hence, he made addition to that extent. As per section 68 of the Act, in order to make
ITA Nos.468 to 473/Bang/2023 Smt. Rathnamma, Bangalore Page 6 of 10 addition under this section, any sum is found to be credited in the books of accounts of the assessee in this Assessment year under consideration and the explanation about the nature of source of credit is either not given or the explanation was provided by the assessee is not satisfactory in the opinion of the ld. AO, then addition could be made u/s 68 of the Act. In the present case, it is an admitted fact that assessee has not maintained the regular books of accounts and these credits were not reflected in the regular books of accounts maintained by the assessee, so as to explain by the assessee. The assessee has filed statement of affairs for the year ended 31.3.2013 (relevant to assessment year 2013-14), wherein it is shown opening capital account balance at Rs.41,22,092/- as on 1.4.2012. The ld. AO enquired about the source of this credit. The assessee has furnished the details of her income, which is in the form of rental income, which has been received by the assessee from year to year and also subject to deduction of TDS in various assessment years. The assessee has also took a plea that the capital contribution also includes amount lent by her to Shri Puttaraju from year to year. The ld. AO was not ready to accept this argument of assessee and made additions. In our opinion, to invoke section 68 of the Act, there should be any sum credited in the books of accounts of the assessee in the assessment year under consideration since the statement of affairs filed by the assessee without support of books of accounts cannot be considered as the books of the assessee. This view of ours was supported by the judgement of Hon’ble Madras High Court in the case of CIT Vs. Taj Borewells reported in 291 ITR 232 wherein held as follows:
“12.4 Thus, in our opinion, the provisions of section 68 of the Act cannot be applied in this case as the assessee is not maintaining the books of accounts. Further, the P&L account and balance sheet filed by the assessee before the assessing authority cannot be considered as a books of accounts, as contemplated u/s 68 of the Act. Thus, the view of ours fortified by the judgement of Hon’ble
ITA Nos.468 to 473/Bang/2023 Smt. Rathnamma, Bangalore Page 7 of 10 Madras High Court in the case of CIT Vs. Taj Borewells reported in 291 ITR 232 wherein held as follows: “The P&L a/c of a trade is the statement wherein the various items of profit and revenue on the one hand and the losses and expenditure on the other hand, are collected and offset, the one class against the other, that is, in compiling such an account being debit all the losses, credit all the gains. The resulting balance of this account represents the net profits or the net losses for the period under review. The object of a P&L a/c is to ascertain the income of a business and by offsetting the expenses of earning that income, to ascertain the net increase (profit) or decrease (loss) in the traders' "net worth" for the period. Balance sheet lists the assets and liabilities and equity accounts of the company. It is prepared "as on' a particular day and the accounts reflect the balances that existed at the close of business on that day. The P&L a/c and the balance sheet are not the books of account as contemplated under the provisions of the Act. -s. Rajaqopala Vandayar vs. CIT (1990) 81 CTR (Mad) 195: (1990) 184 ITR 450 (Mad) applied. (Para 6)
The assessee firm had explained the source of capital. So, there was an explanation offered by the assessee firm. The said explanation has not been rejected by the AO. Later, the AO examined the partners and the partners had also made explanation in respect of the source for the contribution of the capital to the assessee firm. The AO had also partially accepted the explanation offered by the partners. The AO had not rejected the explanation offered by the firm. Unless and until the explanation offered by the firm is rejected and the same is not genuine, the AO cannot invoke the provision of s. 68. The AO cannot ask the assessee firm to prove source of a source. Once the firm had offered an explanation and established that the capital was contributed by the partners, the same could not be assessable in the hands of the firm. Unless there are contradictions and inconsistencies in the statement of the partners, the credit cannot be treated as unexplained and cannot be added under s. 68 in the hands of the assessee firm. Also, it is clear from the language employed under s. 68 that only the assessee alone has to offer explanation. If the assessee makes explanation, it is for the AO to accept or reject the same. Finding given by the Tribunal is that the assessee firm had explained the source of the capital and hence the same cannot be assessed as undisclosed income in the hands of the assessee firm. If the AO doubted the genuineness of the source of the partners, he should have considered the same in the hands of the partners only and not in the hands of the firm. The reasons given by the Tribunal are based on valid materials and evidence and hence the view taken by the Tribunal is in accordance with law. It is not a fit case for making addition under s. 68. -India Rice Mills vs. CIT (1996) 218 ITR 508 (All) and Surendra Mahan Seth vs. CIT (1996) 221 ITR 239 (All) concurred with; Jaqmohan Ram Ram Chandra vs. CIT (2005) 193 CTR (All) 153: (2005) 274 ITR 405 (All) distinguished.” ……………………………………………………………………………………….
ITA Nos.468 to 473/Bang/2023 Smt. Rathnamma, Bangalore Page 8 of 10 12.3.1 Thus, the provision u/s 68 of the Income Tax Act, 1961 is well settled that in order to make an addition under this section the very sine qua non is that there should be any sum credited in the books of the Assessee. The very fact that there was a credit entry in the bank passbook of the Assessee or entries in the balance sheet produced by the assessee during the course of assessment without maintaining books of accounts cannot be construed as a credit in the books of the Assessee. It is fact that the onus to prove the nature and the sources of the sum credited is on the Assessee but onus does not get transferred on to the Assessee since the very sine qua non u/s 68 is that there should be any sum credited in the books of the Assessee. Since the bank passbook or entry in the balance sheet without books of accounts cannot be constructed as the books of the Assessee, as explained detailed above along with judgements, the order passed by the Assessing Officer making an addition u/s 68 of the Act is unsustainable.
………………………………………………………………………………………………… 21.1 Being so, the entries made by assessee in the P&L account, balance sheet or any statements filed by the assessee cannot be considered as a books of accounts and on that basis, the AO cannot make any additions without carrying out necessary enquiry in this regard. Being so, placing reliance on the judgements of Madras High Court in the case of CIT Vs. Taj Borewells reported in 291 ITR 232 (Mad) (2007), wherein held as follows: “Held, that the following striking features were present: (a) since there were no books of account, there could be no credits in such books; (b) it was the first year of assessment of the assessee; (c) the explanation offered by the assessee-firm was not rejected and only the explanation offered by the partners was rejected. Unless and until the explanation offered by the firm was rejected and was found not genuine, the Assessing Officer could not invoke the provision of section 68. The addition could not be made.”
6.1 Further, u/s 68 of the Act, it is only the credit entry appearing in the books of accounts of assessee for the relevant previous year that can be treated as unexplained cash credit in the absence of proper explanation by the assessee. Therefore, the opening balances shown by assessee in the statement of affairs filed before the ld. AO or in the return of income or at the time of assessment before ld. AO cannot be considered as unexplained credit u/s 68 of the Act. Same view was taken by the Tribunal in the case of ITO Vs. Rahul Kantilal Shaw in ITA No.6805/Mum/2018 dated 26.7.2022. 6.2 In view of the above discussion, we are inclined to delete the addition made towards opening balance at Rs.30,43,000/-.
ITA Nos.468 to 473/Bang/2023 Smt. Rathnamma, Bangalore Page 9 of 10 7. Next ground in ITA No.473/Bang/2023 is with regard to addition of Rs.10 lakhs made u/s 69 of the Act as unexplained investment. 7.1 The ld. A.R. submitted that the assessee has not made any new fixed deposit in this said assessment year and the ld. AO has taxed only on the basis of Form 26AS without verifying its genuineness. The ld. AO has failed to provide the copy of Form 26AS to the assessee. The burden of proving the authenticity of the information available on hand lies on the department. Making additions merely on the basis of information available in the Income Tax Portal is incorrect and cannot be considered as “Unexplained investment” for the purpose of Section 69 of the IT Act. Further, the details of Fixed deposit provided in the Form 26AS does not mention about the date of Fixed deposit or the Fixed deposit certificate number. Merely mentioning the Bank name and amount of fixed deposit in Form 26AS cannot be construed as authentic source of information. She placed reliance on the following rulings given by the ITAT, wherein it has been held that addition cannot be made merely on the basis of information disclosed in TDS Certificate (26AS):- 1. ITO Vs. M/s. Star Consortium ITA No.04/Kol/2020 2. Shri Suresh Kumar K. Kataria Vs. DCIT in ITA No.375/Rjt/2018 8. The ld. D.R. relied on the order of lower authorities. 9. We have heard the rival submissions and perused the materials available on record. The contention of ld. AO is that this amount of fixed deposit at Rs.10 lakhs was not made in the assessment year under consideration i.e. 2018-19 shown in the Form No.26AS and it has been made in earlier assessment year and the figure shown in Form 26AS is only brought forward figure and no addition could be made in the assessment year 2018-19. Further, it was the submission of the assessee’s counsel that this deposit has been disclosed to the department in its statement of affairs filed with
ITA Nos.468 to 473/Bang/2023 Smt. Rathnamma, Bangalore Page 10 of 10 the department for the year ending 31.3.2019 and as such this cannot be considered as unexplained investment in the assessment year 2018-19. In our opinion, the assessee has to demonstrate by producing the FD certificate to show the date of investment before the ld. AO. The ld. AO has to examine whether investment has been made in the assessment year under consideration i.e. 2018-19 or earlier to this. If the investment has been made in the assessment year under consideration, then only he should consider it for addition u/s 69 of the Act, if the assessee failed to explain the source of that investment. Accordingly, this issue is remitted to the file of AO for fresh consideration. 10. In the result, appeals of the assessee in ITA Nos.469 to 472/Bang/2023 are dismissed, ITA Nos.468/Bang/2023 is partly allowed and assessee’s appeal in ITA No.473/Bang/2023 is partly allowed for statistical purposes. Order pronounced in the open court on 13th Sept, 2023
Sd/- Sd/- (Madhumita Roy) (Chandra Poojari) Judicial Member Accountant Member
Bangalore, Dated 13th Sept, 2023. VG/SPS
Copy to:
The Applicant 2. The Respondent 3. The CIT 4. The CIT(Judicial) 5. The DR, ITAT, Bangalore. 6. Guard file By order
Asst. Registrar, ITAT, Bangalore.